incl. Hirschman: role for the government includes directly productive activities
7
.cont. 2006):
“the government is only focused on providing complementary inputs to the market”
vs. Wade (2009):
industrial policy as “any sectorally or activity-targeted intervention” with government leadership or followership of the market
(leading decentralized private producers to do something they would otherwise not do.UGH: government leadership. in directly productive activities
Pack and Saggi (2006):
industrial policy: “any type of selective government intervention or policy that attempts to alter the structure of production in favor of sectors that are expected to offer better prospects for economic growth in a way that would not occur in the absence of such intervention in the market equilibrium” --.UGH: in favor of sectors that are expected to offer better prospects
+ Role of government: Industrial policy discussion (Rodrik. betting on some of what the private sector is already doing)
--.

adoption of the modern enterprise system. China and the Unbalanced Growth Hypothesis Pre-reform period: balanced growth
Planning textbook (Li. 1983): planned economy is superior to the market economy because it leads to “balanced and continuously rapid economic development of social production” and the “rational use” of resources
-> Basic industrial structure is in place at the beginning of the reform period -> How to develop faster?
Reform period: opportunity/need(?) for unbalanced growth strategy
State-owned enterprise (SOE) reform:
Ongoing. but in particular during the period 1998-2000: 抓大放小. withdrawal of the state from specific sectors
-> Is the state making strategic choices from which sectors to withdraw? Is the strategy designed to optimize economy-wide growth? + Fiscal decentralization -> incentives for localities to develop + Creation of national markets -> scope for specialization
8
.b.

local specialization incentives for local governments to promote economic growth Chinese provinces the size of a European country
Why focus on SOE policy?
other government policies (explicit industrial policies) hard to quantify WTO prohibition for many types of industrial policy SOEs as key mechanism through which the state engages in the economy
9
.The nice thing about China: avoid difficulties of cross-country studies
8 regional. 31 provincial observations all subject to similar institutional and cultural environment cohesion within a nation state increasingly national markets.

a victim of the tendency to subordinate economic hypotheses to the restrictive requirements of elementary regression and correlation analysis. of another sector? differences in linkage coefficients across sectors? (too narrow) (2) Measurement of linkages: how to operationalize?
15
.: largest value for backward linkage in grain mill products… therefore grow grain? Low forward linkages in machinery and transport equipment: selling to final demand But no fundamental difference between a stimulus from agriculture towards establishing a tractor assembly plant vs. Critique of the use of quantitative measures in testing the UGH
Hirschman: “excessive reliance should obviously not be placed on these rankings.”
(1) (a) Reduction of book-length theory of unbalanced growth to an argument about linkages (b) Meaning of “unbalanced growth?” different sectors growth at different speed? level of dev. an insecticide mixing plant
McGilvray (1977): “It is regrettable that an original and valuable contribution to an understanding of economic development processes has been emasculated and oversimplified. of one sector imposes a constraint on the dev.b. based as they are on a mental experiment subject to numerous qualifications”
Assumption that a country’s development started with the industry in question Ex.

Conclude: non-falsifiable UGH? Abandon attempts to test the UGH
Krugman (1994): fall of the “high development theorists”
Here: specific focus. using Chinese data:
(1) To what extent do linkage effects impact on economic growth? (2) To what extent does the Chinese government consider linkage effects in decisions on the distribution of state ownership across sectors?
16
.

excluding sector i. decrease if sector i were absent?
->
Linkage measures in the literature are in terms of output
Output linkage of a particular sector measures how a unit increase in final demand or gross output in one particular sector affects output across the sum of all sectors (possibly excluding the original change. Intermediate sales / GOV (2) BL and FL based on Leontief inverse. 2001) of a sector: By how much does an economy’s total output in all sectors. Gosh inverse (3) LSD and GSD (Cai and Leung. 2004) (4) Index of vertical integration INT (Heimler.Five sets of sectoral linkage measures
(1) Intermediate purchases / GOV. 1991) (5) Total linkage index (Miller and Lahr. or the sector in which the original change occurred)
Here: profit opportunities created
Profit linkage of a particular sector = how a unit increase in final demand or gross output in one particular sector affects profit across the sum of all sectors (…) Multiply output effect that a particular sector experiences by its ratio of operating surplus to output
19
.

need a comprehensive measure of linkage for each locality: “coefficient of interdependence” = weighted sum of all sectoral linkage coefficients. with as weights the sectoral output values (2) Measure of variation for linkage coefficients given an equal depth of sectoral interdependence. additional manipulations (where needed below)
(1) For comparisons across geographic entities.Two standard. linkage coefficients of approximately equal value across sectors may have a different impact on growth than linkage coefficients that differ across sectors
20
.

. Potential for local substitution of domestically imported goods is ignored. the regional input coefficients capture the impact of a change in ‘final demand for the products of this region’ on ‘production in this region’ (only) They also ignore the impact of a change in ‘final demand for the products of another region’ on ‘production in this region.
24
. but to a corresponding change in the production in this region (or another region). not in other localities.’
Why this choice?
Local government through its SOE decisions wishes to influence economic growth in its locality.
(b) International imports: no choice: competitive
A change in final demand for the products of this region will not lead to imports from abroad.e.How to handle trade flows?
(a) Interregional trade flows and international exports: domestically non-competitive
I.

do the linkage patterns across sectors differ between linkage indicators? Question 2: For any one specific linkage indicator. do the values differ across sectors and across regions?
25
. for each of the 17 sectors in each of the 8 regions.(ii) Linkage values
Calculate the values of the 5 sets of linkage indicators (8 distinct indicators). both output and profit linkage indicators.
Ask two questions
Question 1: In any one region.

Two (of the four) BL indicators and two (of the three) FL indicators are positively correlated with the total linkage indicator (TL). Linkage patterns of different linkage indicators across sectors are similar for different regions.If not. -> TL captures sth of everything? Profit linkage indicators: No clear pattern! -> difficult to narrow down the choice of indicators In the following. then one representative linkage indicator suffices for the remainder of
the analysis. do the linkage patterns across sectors differ between linkage indicators? --. GSD
26
. Focus on one region: Beijing-Tianjin -> Table Output linkage indicators: Backward linkage measures tend to be correlated with BL measures. FL) + Hirschman trusts more in BL than in FL… alternatives: INT. focus on TL (of more interest than breakdown BL vs. BL and FL measures tend to be negatively correlated.Question 1: In any one region. Forward linkage measures tend to be correlated with FL measures. LSD.

-. INT.
28
.If they differ across sectors. GSD also differ across sectors.Each region’s set of linkage indicators will be applied to all provinces within the region. CV ≠ 0. regions similar.
Findings (Table)
Total Output Linkage (TOL) values differ substantially across sectors. (Same for TOL. (Data problems?) Patterns of TPL coefficients across any two regions tend to be different. then different regions should have different distributions of state ownership. Total Profit Linkage (TPL) values differ substantially across sectors.) -> Expect diff. CV ≠ 0. Patterns of TOL coefficients across any two regions are similar. furthermore. in degree of state ownership across sectors within any one region. regions: sectors different. differ across regions. across sectors) across regions.If they. then some sectors should attract more state attention than others. + Possibly some diff. Regression of TPL on sectors.Question 2: For one specific linkage indicator. (in distribution of state own. --.
LSD. little across regions. do the values differ across sectors and across regions?
-. Central region as special case: negative profit effects.

Robustness: Similar results for changes in sectoral shares of SOEs during a period (in relative or absolute terms) Similar results for both measures of state ownership: SOE share in sectoral value added sector’s share in SOE value added of the province Findings for LSD. INT. => State accounts for large share of output in low-linkage sectors. GSD no different Questions… Do high linkage effects not come with rapid economic growth in China? Is the link between ownership and linkage more subtle than a correlation coefficient can capture?
32
.(ii) Linkage and state ownership (1994. 1997. 2003)
(Regional) TOL. 2000. TPL and (provincial-level) state ownership not correlated across sectors.

some significance for INT
(b) Via assets?
SASAC task: protect and increase state assets -> All 8 regions show a positive correlation between the state share in sectoral industrial assets and TOL (5.) 5 regions for TPL -> Results are weaker if sectoral share in state assets is used -> Almost no correlation for LSD. National level (2008. GSD.) -> Correlation for share of state in all investment in a sector (10% sign.Discussion: Why does the Chinese state not strategically retain (or increase) state ownership in high linkage sectors when these have a positive impact on growth?
(1) State is interested in making good use of linkage effects. 1% sign.) in only 2 of the 8 regions -> Similar findings for LSD. lack of data for 1994-2003): Relate state share in investment to regional TPL values. GSD. but not via SOEs? (a) Via current period investment?
No provincial-level set of sectoral investment data by ownership. by sector -> No correlation for sectoral share in state investment (10% sign. INT 41 Conclude: some attention of state to linkage effects via assets? = cumulative past policies
.

Tend to have high linkage. as well as in natural monopolies. --.Utilities are high TPL (in top 3 sectors) in 2 regions. --.)
(2) Industrial policy (a) 10th Five-Year Plan 2001-05 distinguishes between 5 groups of sectors
(i) Military industry remains overwhelmingly state-owned. (v) In other industries. Electric machinery and electronic communication equipment? --. and high technology industries. telecommunications.High TPL in one region. -> Not a compelling match. (ii) In public goods industries and services. machine building.Sector “others”? Not a high-linkage sector. (iv) The state should play a driving function in key high technology areas. --. (iii) SOEs should continue to hold a dominant position in industries of great importance for the “strength of the nation. the state should hold a controlling stake. the state is not assigned any specific role.” such as the petroleum. automobile.
(b) 9th Five-Year Plan 1996-2000: no specific sectoral instructions for SOEs [next slide]
42
.Discussion (cont.

same holds for sectoral share in state value added // sectoral SOE profitability + no correlation of sectoral profitability (SOEs. profit plus taxes per unit of equity) --. INT.” including reorganization of SOEs to prevent the loss of state assets. … In the 1980s nearly all discussion was centered on reviving the profitability of SOEs. 2003: Positive correlation between state’s share in sectoral value added and profitability of all directly reporting industrial enterprises in a sector (profit per unit of equity.) 43 and (8 regions’) TPL. and a strengthening of enterprise management. = Focus on profitability? SOEs belong to one of four levels of government. LSD.)
(b) 9th Five-Year Plan 1996-2000: no specific sectoral instructions for SOEs Focus on introduction of “modern enterprise system. GSD
. all ent.Discussion (cont. 2)
(2) Industrial policy (cont. Availability of input-output tables at local levels? Scope for input-output planning within the political system? Departmental interests Wong (2009): “official documents from the 1980s and early 1990s revealed no sustained discussion of how to identify areas or services where the government’s role could or should be reduced. each maximizing its own utility.” National data.

not output linkage
(2) Distribution of TPL coefficients across sectors does not matter
Not availability or unavailability of extreme profit-creating opportunities matters. less so in 1997-2000. growth via linkage effects
--. and none in the third period (2000-03)
Compare Hsieh and Klenow (2009): 1998-2005: SOEs have on ave.
(3) The Chinese state does not strategically retain (or increase) state ownership in high linkage sectors and thereby promote economic growth (4) The SOE share in sectoral value added has a negative impact on economic growth in 1994-97. the faster its growth. Conclusions
(1) The greater the degree of linkage in a Chinese province. but that high-linkage sectors are large.
And it is profit linkage that matters.5.What if the state in its SOE policies had paid attention to linkage values?
(6) Is the Party-state incapable of organizing an overarching development program?
44
. 40% lower within-industry TFP than private ent. Time trend of within-industry TFP dispersion: SOEs have significant positive effect in 1998 and 2001 but no longer in 2005
(5) Cannot justify state ownership as generator of econ.